A corporate stranglehold on how a local franchisee can run two popular Steak 'n Shake restaurants has pushed them to the brink of failure, mostly because it costs more to operate in Denver than elsewhere, according to court papers filed in a federal lawsuit Friday.

Franchise owners Kathryn, Larry and Christopher Baerns of Aurora also say in court papers that executives of the Indianapolis-based restaurant chain made a number of alleged misrepresentations about the potential success of the business, mostly just to get their money.

Now, less than a year after they've invested more than $350,000 into the SnS chain with an exclusivity promise to operate 13 restaurants in the Denver area, the Baernses claim they were misled and their efforts to succeed were thwarted by the chain's iron-fisted requirement of uniform pricing.

The family's allegations come in its response to a lawsuit filed last week in U.S. District Court by SnS to stop the Baernses from operating under the chain's famous logo. The chain says it terminated its 20-year franchise agreement last month when the family refused to follow corporate policies that its 500 stores offer identical prices, no matter their location nationwide.

Claiming they were "fraudulently induced" into investing, the Baernses ask that the efforts to shut them down are stopped.

The Baernses say in a counterclaim that it became clear Denver was an anomaly, that food prices were higher than SnS franchisees paid in other parts of the country, and that SnS not only knew this but disregarded the information when projecting the potential of the Denver market.

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The chain operates primarily in the Midwest and South. Neither Steak 'n Shake officials nor attorneys for the chain could be immediately reached for comment Friday. The company has typically refused to discuss lawsuits.

The Baernses say they first approached SnS about franchise opportunities in early 2011 but eventually bought out Tom and Connie Caruso of Littleton about 10 months after the Carusos opened the chain's inaugural Colorado restaurant in Centennial in November 2011, followed by one in Sheridan.

SnS's initial projections were for net profits in Denver to exceed 21 percent per location, according to the Baernses' complaint, an estimate later changed to say Denver locations should "easily achieve" more than 25 percent.

Those profits would fuel development of the additional locations required under the agreement, the Baernses say SnS told them.

But problems with the projections and corporate promises of success surfaced quickly, they said. Sales projections of more than $2 million annually were half that amount. Food costs that were "deliberately understated" were 20 percent higher, and labor costs were nearly double the projections, the Baernses say.

Christopher Baerns says he told SnS last November that the two restaurants "were not profitable and the only way to make them such was to raise prices," which SnS said was imminent.

Financial troubles peaked when SnS imposed a $4 menu nationwide, which "was a significant decrease" in prices, contrary to what the Baernses said was needed to save their shops.

Then, a mandatory computer system prevented them from offering a la carte purchases. Finally, in June, the lender for real estate earmarked in Northfield for the next restaurant backed out because of the poorly performing restaurants, the Baernses said in their complaint.

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